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PAYROLL PROTECTION PROGRAM LOAN FORGIVENESS

PPP LOAN FORGIVENESS CALCULATION

If you were one of the lucky few to get your loan approved and has either already received the funds in hand or a SBA loan number than skip to below to learn about the Forgiveness Calculation . If you do not have funds in hand or an SBA loan number than you do not have a loan.

Paycheck Protection Program

As of the writing of this update, our amazing congress is still in debate on the passage of the 2 nd round of funding for the Paycheck Protection Loan Program. The good news is that both sides agree that funding is needed and I believe it is just a matter of when the bill will pass and how much extra stuff has been added on to the bill. So as previously written there are steps you can take in the meantime:
  • Reach out to our local representatives and let them know you want them to get this done.
  • Connect with your local bank and stay in contact with them. Yes, funding is not currently open, but they can process applications so they are prepared on their end. This will be a race once again.
  • Connect with a 2nd or 3rd local bank. If you need a bank contact,  please reach out and we can connect you with a local bank.
  • If you bank with one of the big banks (Chase, Wells Fargo, BofA, etc.) I would connect with a local bank as well.

LOAN FORGIVENESS CALCULATION

Congratulations on having received your Paycheck Protection Loan.  Yes, this is a loan if you do not supply the necessary documentation to qualify for full or partial forgiveness.  This money is to be spent on payroll and certain qualified expenses as outlined below.

Please click on our loan forgiveness calculator to help you organize:  Click here

Please note that as of the writing of this the final regulations for loan forgiveness have not been finalized and everything below is subject to change, including our forgiveness calculator.
The loan forgiveness calculation is a two part calculation:
  1. You must maintain the same or higher amount of full time equivalent employees.
  2. You must spend equal or more money on employees, rents, and utilities with 75% of total qualified expenses going towards payroll costs.
Part 1 – Full Time Equivalent Employees (“FTE”):
FTE is not yet defined, but we assume it has the same meaning as it has always had. A person who works 40 hours per week is counted as 1.0, while a person who works 24 hours per week is considered .6. FTE’s are measured and averaged using each pay period during the 8 week period. The average number of FTE’s is then compared to the base period. The employer gets to choose the base period that is the most beneficial:
  1. February 15, 2019 – June 30, 2019 OR
  2. January 1, 2020 thru February 29, 2020
Example:
  • Average FTE’s during the 8 week period was 8
  • Average FTE’s during the base period February 15th 2019 thru June 30, 2019 was 10 employees
  • Average FTE’s during the base period January 1, 2020 thru February 29, 2020 was 12 employees
The business would choose the February 15 th 2019 thru June 30, 2019 because this is a lower amount of employees, thus giving you a higher chance of loan forgiveness. The calculation for maximum loan forgiveness would be as follows:
  • 8 / 10 = 80%
  • $100,000 loan * 80% = $80,000
  • $20,000 of the loan would need to be repaid.
  • Had you used the alternative date, $33,333 would have needed to be repaid.
Part 2 – Qualified Expenses:
Qualified Payroll Costs:
Your payroll costs will be tracked by us if we do your payroll. The following expenses are considered qualifying payroll expenses. According to the SBA Interim Final Rule issued on April 2, 2020, payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation (cash compensation for each employee is capped at $100,000 (as prorated if necessary) – subtract the amount of cash compensation paid to each employee in excess of $100,000 for each such employee); cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; and payment of state and local taxes assessed on compensation of employees.
Excluded Payroll Costs:
Excluded “payroll costs” are any compensation to an employee whose principal place of residence is outside of the United States, qualified sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act, and federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA and Railroad Retirement Act taxes and income taxes required to be withheld from employees. Note that for an independent contractor or sole proprietor, “payroll costs” consist of wage, commissions, income, or net earnings from self-employment or similar compensation that do not exceed $100,000.
Payroll costs must be a minimum of 75% of your forgiveness expenses. For example, if your loan is for $100,000, your payroll costs must be at least $75,000.
Other Qualified Expenses:
Non payroll   qualifying expenses include interest on mortgage obligations incurred before February 15, 2020; rent payments on leases dated before February 15, 2020; and utility (electricity, gas, water, transportation, telephone and/or internet) payments under service agreements dated before February 15, 2020, mortgage interest payments (but not mortgage prepayments or principal payments), interest payments on any other debt obligations that were incurred before February 15, 2020.
Other qualified expense can only represent a maximum of 25% of your total loan costs. For example, if your loan is for $100,000, other expenses listed above cannot exceed $25,000.
Recommended next steps:
  • It is imperative that you begin today to maintain copies of each qualifying payment and you can click on the link at the top of this letter for an excel sheet meant to help you organize your information. Do not wait until the end of the period. We want to move fast in asking for and receiving forgiveness. You will need a copy of the invoice (with the date and type payment used) for every expense. Pay close attention to the dates. You cannot afford to miss paying within the 8-week period.
  • Look at switching to weekly or bi-weekly payroll to ensure you get a full 8 weeks of incurred and paid payroll. Monthly filers will most likely miss out on some payroll expenses. Weekly filing will ensure the maximum payroll deduction.
  • For retirement company match – recommend making those during the 8 week period rather than waiting until year end as this is included as payroll costs.
  • Health Insurance – For those that are just reimbursed at year end for solo S-Corp owners, we recommend adding this to your payroll monthly as this is also included as part of your payroll expenses.
  • Rent – Do not defer your rent payment during the 8 week period, pay these on time and ask if you can pay weekly so as to maximize your deduction.
  • Utilities – same as above – pay as much as you can during the 8 week period.
There are a lot of unanswered specific questions in what the final guidelines will allow and how the calculations will be made. We don’t know yet. The SBA has been changing the rules weekly.
Above is all the information we have to help calculate the loan forgiveness piece as of today. If you would like us to assist you with any of the loan forgiveness calculations, please reach out and we are happy to assist you.
Stay Safe and Well!